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Journalist
Hassan Shittu
Journalist
Hassan Shittu
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The Central Bank of the United Arab Emirates (CBUAE) granted in-principle approval to AED Stablecoin on October 14, making the firm the first issuer of a fully regulated dirham-pegged stablecoin in the region (UAE).
This latest development falls under the CBUAE’s newly established Payment Token Service Regulation framework and aligns perfectly with the UAE government’s Digital Government Strategy 2025.
Recently, the central bank released a licensing framework that prohibits using crypto for payments unless it involves licensed dirham-pegged tokens. The approval of AED Stablecoin alleviates these worries and now points towards a more inclusive approach to cryptocurrency.
UAE AED Stablecoin: Will Stringent Regulation Hinder Launch?
While this initial license does not provide full authority to implement its stablecoin plans immediately, it represents a critical step toward realizing its ambitions.
AED Stablecoin aims to launch the AE Coin, a dirham-pegged stablecoin intended to function as both a local trading pair and a widely accepted payment method for everyday transactions within the UAE.
However, the recent regulatory updates pose challenges for AED Stablecoin. The CBUAE’s licensing framework also establishes stringent regulations for stablecoins.
It prohibits using algorithmic stablecoins and privacy tokens. Instead, it emphasizes the necessity for fully cash-backed assets.
Issuers must ensure their stablecoins are backed by cash held in a separate escrow account denominated in dirhams within a UAE bank.
Alternatively, issuers can maintain at least 50% of their reserve assets in cash, with the remaining portion invested in secure options like UAE government bonds and CBUAE Monetary Bills.
If fully approved, AE Coin could simplify engagement with digital assets for residents and traders and facilitate day-to-day transactions.
Additionally, merchants may also accept stablecoin for everyday goods and services, which could expand the use of crypto payments in the UAE.
Fines and Regulations: How VARA’s Enforcement Shapes Dubai’s Crypto Landscape
The approval of AED Stablecoin positions it to compete against established players in the stablecoin market, such as Tether, which issues USDT, the world’s largest stablecoin by market capitalization.
Tether recently announced partnerships with local firms Phoenix Group and Green Acorn Investments to introduce its dirham-pegged stablecoin. This clearly indicates a growing interest in this segment of the market.
Similarly, on September 26, Dubai’s Virtual Assets Regulatory Authority (VARA) announced that companies promoting virtual asset investments must include a prominent disclaimer in their marketing materials, indicating that such assets are subject to value fluctuations and volatility.
VARA CEO Matthew White emphasized that these regulations aim to ensure responsible service delivery by virtual asset providers, enhancing transparency and, most importantly, trust in the market.
Notably, on October 9, VARA also fined seven businesses for violating marketing regulations and operating without necessary licenses.
The regulator, in collaboration with other local authorities, is conducting further investigations but has not disclosed the identities of the sanctioned companies. VARA ordered these entities to cease all crypto-related activities and marketing promotions.
Fines ranged from 50,000 to 100,000 UAE dirhams (approximately $13,600 to $27,200) for each entity.
